DOE mulls 100% cost recovery for dev’t of extended well by SPEX

The Department of Energy (DOE) is studying the possibility of allowing a 100-percent cost recovery for the extended well development of Shell Petroleum Exploration B.V. (Spex).

"We are looking at this proposal by Spex. Maybe we can make some adjustments to make the recovery much faster," Energy undersecretary Eduardo Manalac said.

Manalac said this possible leeway will encourage prospective oil drilling firms to participate and invest in the country’s upstream petroleum development activities.

"We can consider giving the proposed 100 percent cost recovery for the first six months of oil production but the overall average should not go beyond the 70 percent cost recovery which is prescribed under the law," he said.

According to Manalac, the DOE has been discussing this issue with the Spex consortium "to hopefully come up with further improvement of the terms in the exploration of the area to make it more viable for the contractor."

"This is being studied as one way to improve the economic cost of oil production and increase the return of oil drilling firms. But we will not, of course, allow them to recover more than what they have invested. Whatever agreement that we will come up should stay in the constraints of the present rules," he said.

He said "the bottomline is to find a way to encourage oil firms to explore known oil resources of the country."

So far, Manalac said the oil reserves in the Malampaya area could range from 18 to 33 million barrels. The Malampaya oil reserves level, he said, is slightly bigger compared to the Nido field.

Spex, the local upstream/exploration arm of the Royal Dutch Shell Group, has decided to push through last year with the drilling of extended wells in a nearby oil field close to the Malampaya natural gas project in northwest Palawan despite the government’s non-committal on the company’s request for 100 percent cost recovery on the test well.

In May 2002, Spex completed the extended well test. It is now in the process of analyzing the data which could take six to more than a year.

In the meantime, Spex was able to sell the barrels of oil produced from the Malampaya field to Singapore and Korea.

DOE data show that seven oil fields all located in northwest Palawan have been discovered since 1979. Four of these have been shutdown since 1998 due to very limited output while the remaining oilfields (Nido, Matinloc, and North Matinloc) are still producing but have been limited to a total of 1,000 barrels per day.

The Philippines consumes about 340,000 barrels of oil daily.